Foregone Cash Interest during a M&A case?

CFA General
#1

I met with a M&A case asking me to do a Accretion-dilution analysis I don’t quite understand the “interest rate on foregone cash” Is it to say, if A has $2000 and spend 840 acquiring B, then on the consolidated income statement, i have to calc like this: EBIT - interest expense +/- interest loss - interest on foregone cash (which is 5.5%*(2000-840)?) IF so, the company would loss more foregone interest under 100% stock THAN 100% cash scenarioH need some advice. thanks a lot…

#2

I think you’re on the right track. They are likely asking you to quantify the transaction’s impact on reported earnings. One component will be the (lower) amount of interest income resulting from the cash spent in the deal.

#3

Anonymous Wrote: ------------------------------------------------------- > I think you’re on the right track. They are > likely asking you to quantify the transaction’s > impact on reported earnings. One component will > be the (lower) amount of interest income resulting > from the cash spent in the deal. thanks. So I should use 5.5%*840 as foregone cash interest?

#4

Need more advice…thanks.